With Congress paralyzed, Treasury is running on fumes

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The U.S. Capitol building

The government of the most prosperous country in the world is running out of cash.

And with Congress crippled by a leadership vacuum in the House, a once-routine move to raise the Treasury's borrowing authority remains stalled by a political standoff that threatens the throw the U.S. economy into turmoil.

Treasury officials say they are rapidly running out of ways to head off an economic and financial calamity.

"We are on track for further economic growth — yet with eight days, as of Monday, until Treasury runs out of borrowing authority on Nov. 3, some in Congress are endangering this progress by once again manufacturing a crisis for our country," Treasury Secretary Jack Lew wrote in an op-end Monday in USA Today. "By waiting to the last minute to act on the debt limit, Congress could cause a terrible accident."

The exact date when the Treasury will have to start bouncing checks is difficult to predict. With some 80 million payments moving through the system each month, the government's revenues and expenses ebb and flow with irregular, sometimes unpredictable, peaks and troughs on the income and payment sides of the ledger. Social Security checks typically go out at the beginning of the month, for example. Quarterly tax receipts, on the other hand, typically cluster around the middle of the month.

But the Treasury is rapidly exhausting its remaining cash. Because Congress authorizes more spending than it mandates in taxes, the Treasury has to borrow the difference. But — unlike every other developed country in the world — U.S. law puts a cap on the department's borrowing authority, which has to be raised as debt reaches that new level. (The debt ceiling has nothing to do with limiting spending; that can only be done when Congress approves the federal budget.)

Since March, when the Treasury hit the current borrowing limit of $18.1 trillion, it's been juggling revenues against expenses to keep the government afloat. But as of last Wednesday, the latest data available, the government had a cash balance of less than $70 billion.

If daily revenues and expenses came in at the average pace of the past four years, the Treasury would run out of money even earlier than the Nov. 3 target. But to head off the looming man-made crisis, Treasury officials have been deploying a series of "extraordinary measures" — the governmental equivalent of looking for quarters and dimes underneath the couch cushions.

Those tactics involve holding off on reinvesting cash in several government investment funds, including those used to back civil service retirement plans or intervene in currency markets when the value of the dollar becomes volatile. But even with those measures, the Treasury is running out of time.

Even before the cash runs out, there are some indications that the crunch is already spilling over into the Treasury's normal sale of debt. A two-year Treasury auction was canceled last week, and the yield on a one-month T-bill yield spiked earlier in the week.

As the Treasury faces a financial calamity, Congress has yet to resolve a leadership crisis that has left the House without a permanent speaker. A vote is expected Thursday on whether to give the job to Wisconsin Republican Paul Ryan, who has said he will serve only if the various warring factions of his party can resolve their differences — including a major split over whether to extend the debt ceiling.

That means "it is not likely that the House will vote on a debt ceiling bill until after Thursday's floor vote for speaker of the House," according to John Silvia, chief economist at Wells Fargo Securities.

Silvia notes that the House last week passed a bill ordering the Treasury to prioritize payments for interest and the debt and Social Security recipients, but faces a White House veto threat. In the lead up to the last debt ceiling crisis in 2011, Treasury officials said they did not have the legal authority to prioritize payments. And even if they did, it's not clear that the payment systems can be reconfigured to pay some bills and not others.

Though the bickering over raising the debt ceiling has become intensely partisan, the increase in the national debt over the last seven decades has been a bipartisan effort, rising steadily under Republican and Democratic presidents alike. While the Obama administration presided over the biggest increase in public debt in dollar terms, the biggest percentage increase came during the Reagan administration.